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Asset Returns and Intertemporal Preferences

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  • Shmuel Kandel
  • Robert F. Stambaugh

Abstract

A representative-agent model with time-varying moments of consumption growth is used to analyze implications about means and volatilities of asset returns as well as the predictability of asset returns for various investment horizons. A comparative-statics analysis using non-expected-utility preferences indicates that, although risk aversion is important in determining the means of both equity returns and interest rates, implications about the volatility and the predictability of equity returns are affected primarily by intertemporal substitution. Lower elasticities of intertemporal substitution are associated with greater variance in the temporary component of equity prices.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3633.

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Date of creation: Feb 1991
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Publication status: published as Journal of Monetary Economics, Vol. 27 No. 1, pp. 39-71, February 1991.
Handle: RePEc:nbr:nberwo:3633

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  5. repec:fth:harver:1533 is not listed on IDEAS
  6. Shmuel Kandel & Robert F. Stambaugh, . "Modeling Expected Stock Returns for Long and Short Horizons," Rodney L. White Center for Financial Research Working Papers, Wharton School Rodney L. White Center for Financial Research 42-88, Wharton School Rodney L. White Center for Financial Research.
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